In recent years, the term RWA (Real World Assets) has become important in the cryptocurrency space, linking it to the tokenization of real-world assets such as real estate, physical assets, stocks, bonds, and other financial instruments. Tokenization allows these assets to be transformed into digital tokens, which, according to its proponents, can significantly improve and modernize the existing financial infrastructure.
September 18, 2024
Vlad Kostiuk, Analyst
Germany
A strong boost to the development of this area was given by BlackRock, which in 2024 announced the launch of a fund for tokenized assets. This move attracted the attention of not only the crypto community but also traditional investors, highlighting the growing importance of RWA tokenization.
How is RWA tokenization structured?
Tokenization of real-world assets is the process by which real-world assets are converted into digital tokens and placed on a blockchain. A token can represent ownership shares or rights to profits from assets such as real estate, bonds, or stocks. The key difference between RWA and traditional crypto-assets is the presence of real collateral, making them more stable and reliable for investors.
Interest in RWA has grown with the emergence of numerous major projects whose tokens have attracted attention due to high growth rates and promising prospects. Examples of such companies will be discussed below.
In which sectors is tokenization possible?
Real Estate
Real estate is one of the most promising areas for tokenization due to the immense size of this market. This process allows properties to be divided into small shares, making investments accessible to a broader range of investors. For example, the tokenization of the St. Regis hotel in Aspen, Colorado, by the company SolidBlock, is a prime example of the successful application of this technology. Real estate tokens can be easily bought and sold on secondary markets, significantly increasing asset liquidity. The use of blockchain ensures transparency in all transactions, minimizing the risk of fraud.
Agriculture
Tokenization is also being applied in agriculture, offering opportunities for farmers’ financing and increasing the transparency of supply chains. Platforms such as AgriDigital use blockchain to track grain from the farm to the end buyer. This helps reduce risks and build consumer trust by providing accurate tracking of the origin and movement of agricultural products. The tokenization of farmland and products can assist farmers in attracting the capital needed to modernize and expand their production. In the next issue of FUTURUM magazine, readers will be presented with a presentation on the large-scale cross-border tokenization project of the Bio+integrated biocomplex.
Manufacturing Assets
The tokenization of manufacturing assets, such as equipment and factories, provides opportunities to attract capital investments and improve asset management. For instance, General Electric has explored blockchain technologies for managing its industrial assets. Tokenization enables precise tracking of the condition and usage of manufacturing assets, aiding in efficient management and reducing operational costs.
Energy
The energy sector is also actively adopting tokenization, especially in the field of renewable energy. Companies like Power Ledger are using blockchain to facilitate the trade of excess solar energy between households. This approach helps raise funds for the construction of new solar and wind power plants and enables the accounting and trading of energy on decentralized platforms. Tokenization of energy assets enhances transparency and efficiency in energy management. An example of tokenization is the initiative and project by Hi-Tech Inovace s.r.o. from the Czech Republic, which has developed a platform for a tokenized securitization fund in the field of alternative energy.
Art and Luxury Items
The tokenization of art and luxury items opens up new opportunities for collectors and investors. Tokenizing luxury goods such as jewelry, diamonds, rare cars, artworks, and collectibles provides new avenues for investment and portfolio diversification. For example, the Swiss company AERARIUM Handelshaus GmbHhas developed a platform and is implementing a private blockchain for the digitalization and tokenization of unique and valuable items. This project will significantly impact the outdated system of physical trading in valuable items such as diamonds, exclusive jewelry, and luxury collectibles, by transitioning this market to blockchain. This shift will reduce risks related to fraud, counterfeiting, replication, theft, and the verification of ownership rights and their transfer to new owners. Modifying or altering a blockchain record is impossible.
Financial Instruments
The tokenization of financial instruments, such as mortgages and corporate bonds, improves liquidity and enables faster capital raising. For instance, mortgage securitization programs using blockchain, implemented by banks and financial institutions, provide more transparent and efficient management of debt obligations. Tokenization allows for the creation of new types of derivatives and structured products, offering investors additional opportunities for risk management and yield optimization.
Project Financing
Project financing is another area where tokenization demonstrates significant advantages. Tokenization enables the creation of digital tokens representing rights to a share and/or revenue from a specific project or infrastructure asset. These tokens can be sold to investors, providing funding for large-scale projects. As a result, the need for traditional loans and syndicated financing is reduced, and funding conditions are improved through lower interest rates and risk diversification.
For example, project financing for the construction of a new power plant can be structured through the tokenization and securitization of future revenue from electricity sales. Investors purchase tokens representing a right to a portion of the future revenues, allowing the necessary funds for construction to be raised. Once the project is operational, investors receive income according to the terms of smart contracts. Such infrastructure project models are highly needed in many developing countries or in nations rebuilding their economies after wars or natural disasters.
Tokenization in Asset Securitization
Tokenization in asset securitization is the process of structuring and creating digital tokens that represent rights to future cash flows or ownership of underlying assets. These tokens are stored on a blockchain, making it easier and more transparent to trade assets and use them as collateral. Tokenization in asset securitization helps improve liquidity, simplify the trading process, and reduce transaction costs. It also provides asset owners/originators or alternative investment funds with extensive opportunities to apply securitization methods to a wide range of asset classes, while giving investors broader access to various types of assets.
For example, the owner of a large hotel could create tokens, each representing a share of ownership in the building. These tokens can be sold to investors, allowing them to participate in the rental income and property value appreciation.
Another example is the tokenization of debt obligations: A company could issue tokens that represent rights to receive future cash flows from loans or bonds. By purchasing these tokens, investors gain the right to a share of future loan payments or coupon payments on bonds.
The mining industry and deposits
Tokenization is also being applied in the mining industry, providing opportunities for financing the development of deposits and improving the management of mineral resources. Tokenization can facilitate capital raising for mineral exploration and extraction, giving investors access to shares in future revenues from mining operations.
An example of this is the MineHub project, which uses blockchain technology to manage and track mineral resources. This platform ensures transparency and data security regarding deposits, enabling investors and companies to monitor the status and movement of mineral resources in real time. The tokenization of deposits also enhances financial planning and risk management within the mining industry.
Educational Institutions
Tokenization opens new opportunities for educational institutions such as universities and colleges. It allows for the creation of digital tokens representing rights to future income from tuition or the use of infrastructure. This can be beneficial for raising funds for constructing new buildings, modernizing campuses, or developing new educational programs. An example is the tokenization model of the Free University of Digital Technologiesproject, developed in the EU by the non-profit organization FUTURUM PLATFORMand the project coordinator, the editor-in-chief of our FUTURUM magazine, and expert in the field, Franc Smidt.
For instance, a university could issue security tokens representing rights to future income from student tuition, as well as utility tokens that grant the right to pay for education and services at significant discounts. These tokens could be sold to investors and prospective students, providing the necessary funds for project implementation. As a result, reliance on traditional sources of funding, such as government subsidies or loans, is reduced. Tokenization also enhances the management of educational institutions by improving transparency and efficiency through the blockchain system.Tokenization of Digital Assets
Tokenization of digital assets refers to the creation and storage of digital assets as tokens on a blockchain. This is important for Web3 development, as it allows efficient management of ownership and usage rights for digital assets.
Tokenization of Digital Assets
Tokenization of digital assets refers to the creation and storage of digital assets as tokens on a blockchain. This is crucial for the development of Web3, as it enables efficient management of ownership and usage rights for digital assets. For example, within decentralized autonomous organizations (DAOs), tokens can be used to represent voting rights, allowing members of the DAO to make collective decisions. Thanks to blockchain technology, token holders have full control over the assets these tokens represent, making them actual owners rather than mere claimants to those assets.
Tokenization of Gaming Assets
Gaming assets, such as skins (character appearances), weapons, or in-game currency, can also be tokenized. In the context of GameFi (gaming finance) and metaverses, these assets are represented as tokens on the blockchain. Tokenization of gaming assets allows players to own their in-game items independently of a specific game or platform. This opens up opportunities for trading and using gaming assets across various platforms and marketplaces, giving them real-world value and creating a new economy around digital gaming.
Examples of leading companies working with RWA
| Company | Blockchain | Capitalization | Description |
| Ondo Finance | Ethereum | $1 billion | The Ondo project started as a LaaS (Liquidity-as-a-Service) protocol providing liquidity rental. The project is currently working on the tokenization of US Treasury bonds and debt securities. |
| Mantra DAO | Own | $510 million | Mantra offers an infrastructure for asset tokenization that works with the Polkadot network, allowing decentralized instruments to be integrated into traditional finance. |
| Centrifuge | Own | $492 million | Centrifuge allows small business assets, such as invoices and debt, to be tokenized and used as collateral for loans. |
| Polymesh | Own | $283 million | Polymesh is a layer-one blockchain focused on asset tokenization and trading, offering low fees and high security. |
| Maple Finance | Ethereum | – | Maple specializes in the tokenization of private loans and the creation of a platform for decentralized lending. |
| Goldfinch | Ethereum | – | A decentralized lending protocol that allows companies to borrow against tokenized assets. In 2021, it raised $11 million from Andreessen Horowitz. |
| TruFi | Ethereum | – | TruFi offers tokenized loans without bank involvement, giving investors the opportunity to earn income by staking the platform’s native tokens. |
Potential and Development of RWA
According to analysts at Bank of America, asset tokenization has the potential to radically transform financial infrastructure, increase its efficiency, reduce costs, and optimize supply chains. Projections from Boston Consulting Group indicate that the market for tokenized assets could grow to $16 trillion in the coming years.
Furthermore, tokenization could help integrate cryptocurrencies into traditional financial systems by providing real backing and liquidity for assets. As analysts from 21.co point out, digital dollars, also known as stablecoins, pegged to the U.S. dollar, have already become the “first successful implementation of tokenization” and account for 97% of all tokenized assets.
RWA tokenization opens new horizons for integrating cryptocurrencies and real assets. Companies such as Ondo, Centrifuge, and Maple Finance are already actively using this technology, providing investors with access to new opportunities. The potential of RWA is vast, and with the continued development of technology and the market, tokenization will become an essential part of the financial world.
Note:In this issue, the “Digital Advisor” section will feature information about the professional German platform for tokenized assets, SWARM.
